Tuesday, December 22, 2009

I remember my stepfather telling me once, when we were discussing business economics, that as a manager he had to look at the people who worked with and for him as liabilities to the company. Their salaries and benefits were on the red side of the accounting ledger. But he remembered when he first started working in the 1950s or so, when a different attitude prevailed here in the U.S.--you tried to keep your people, even in an economic downturn. You didn't want to lose the investment you had in them: the resulting decision to hire them in the first place after an process of elimination taking up staff time, the on-the-job training and experience they received from you, the expertise they acquired during their time with you, the value of having a team used to working with each other and having found ways to be productive as a team...losing all of this has costs to the company. Costs that are not often listed in the ledger.

Another important business asset is goodwill. When you have a good reputation this increases demand for your products or services. Once lost this can be difficult to replace. I believe that goodwill is harmed when a business or other hiring entity discards its trained and experienced staff like ballast during economic downturns. People take note that the company or industry is not safe to work for and does not value its investment in the human beings who work there. Given enough publicity it can drive away customers or result in difficulty in finding people to hire with the level of expertise you used to have when times become good again--you have scared them away; they do not trust you; good luck getting them back.

In the past two decades or so I believe there has been a dangerous economic trend which considers people not only to be expendable but encourages "lean and mean" hiring practices. So now we go into stores and have to walk miles to find a cash register. Transactions which were once pleasant are now horrific as we line up to what used to be 9 work stations at a bank, or a governmental body, and only 3 people are working there. The costs are not calculated but result in customers losing time, patience, goodwill towards the place. The customers' time could have been put towards their own productivity. Like inefficient traffic lights, the aggregate of the individual costs add up to a large loss for the economy as a whole, in gasoline and the value of people's time.

Shipping jobs overseas where labor costs are extremely low may make economic sense for an individual firm in the short run. But for a national economy in the long run it is a flirtation with disaster. Every job lost at home is a person potentially unemployed or underemployed. These people can no longer spend at their prior level which is a lost customer for businesses. How brilliant...to work together to make many of your customers unemployed. A way to grow the economy...with voodoo economics.

The lost tax revenue from the jobs the people no longer have also contracts government money. And then the government cuts. More lost jobs. Yes I'm dizzy, now. Can this mean that slowly the economy is doomed to spirally contract until somewhere a weak link in the economic chain can no longer function and starts a domino effect of collapse? In the wake of The Great Recession...I wonder.I'm probably expressing myself badly. I am so tired tonight. But hopefully some of you out there will understand what my words are trying to say!

There are so many people here in California who are angry at the economic state they now find themselves in, with our high costs of living and now-high unemployment. The call is for the government to cut programs and services and thus taxes. On paper this sounds like it could stimulate the economy. But in periods of high unemployment, recession or the "D Word"..do you really want the government to contract and LAY PEOPLE OFF? Let's say you do what supposedly we did and cut your government spending about 20% with reduction in government size. You have people who were once served who are no longer served. People who were getting benefits who now are in trouble and can't buy groceries. Aha, government saved money. But did they? No one thinks of the effects this might have on grocery store owners.

Laying people off means those people must contract their spending. This affects the businesses of which they were formerly customers. These people also now pay less taxes, as do the businesses who have lost them as customers and now have less business revenue. The loss in tax revenues puts the government back in a deficit...and the response is to further contract government spending? Can this work in bad economic times? Or do we get into a spiral of cuts-layoffs-reduced revenue-cuts and around and around we go, where it stops nobody knows?

At the root is that the many roles people play in the economy have been forgotten. The investment in people is not on the balance sheet.

Government cuts in education are a current concern for California. Our "brain trust" was what attracted businesses here. Now that is threatened and there will be jobs which go to other places which continue to invest in education for their residents.

I found this letter interesting. It is from scientists explaining to our governor that savings from cuts to salaries in higher education may not be as helpful as might seem at first glance. But the message seems to have not been received by the public or the government. If you don't pay your good people enough then they will leave the state. And all of the jobs the research generated go with them. The current fad of extremely short-run thinking would make it seem like money would be saved by the cuts. But if one takes the longer view, looking at several years into the future and examining all of the jobs related to the research which now might go elsewhere, there could very well be a large net loss to the state economy. And it is in economic terms, rather than personal passions, which I believe have not been fully explained to the public and which are simply not understood.

Again, tossing people out in which investment has been made has consequences. A truly dispassionate computer would be able to calculate whether the long-term loss makes the short-term gain worthless. But the computers can be used by those who already have their preconceived notions about what is best to do, often based on ideology instead of dollars and cents adjusted for inflation or deflation please...and the answer is corrupted, flawed, false, fool's gold.

In another post I commented on what is going on right now within a part of the science budget in the UK. For whatever reason, such as short-term thinking instead of a fair and balanced long-term assessment, the UK government is choosing to leave this budget in chaos rather than correct a bookkeeping error which happened a few years ago when a new council was formed. Now these scientists seem to be divided against each other in arguing their case for the now-limited funds available. Divided...conquered. I believe the economically oriented voice would be saying: "The bookkeeping error must now be fixed (adjusted for inflation.) The government must simply find a way to replace these lost funds. There are surely many places where this money can be found. If it is not found, the investment in people--the training, the research, the hard-won expertise--is thrown into the garbage dump AT AN UNCALCULATED COST TO THE TAXPAYER." In addition they risk seeing enthusiasm for going into the sciences affected being wiped out after seeing what has happened to those who put their trust in this government for their careers and livelihood and who are being treated as though...people don't matter.

People matter. Even more than things. This is how we build a good economy and a good community. Once people are seen as only a liability the downward spiral begins. Here in chronic deficit-land, where we have people dying from losing their health care and children hungry who are no longer being fed and jobs disappearing like open fields in the wake of housing developments I think we are learning that forgetting what people contribute to the economy as a whole, whether as producers or consumers, is an accounting error which builds on itself until a Roosevelt comes along and spends the way out of the mess.

We're waiting for you, FDR. Where is that reincarnation when you need it? Do I approve of everything he did as President? Of course not. But he knew not to try to cut his way out of a deflationary spiral.